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September 15, 2015

The Fair Debt Collection Practices Act (“FDCPA”) provides that within five days of any initial communication with a consumer “in connection with the collection of any debt,” a debt collector shall send the consumer a written notice. The notice must contain, among other things, the amount of the debt, the name of the creditor to whom the debt is owed, and a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed valid by the debt collector.

The Real Estate Settlement Procedures Act obligates a new servicer of certain types of mortgage loans timely to notify the borrower of the change in servicer and to provide certain other information regarding the transfer, including the effective date of the servicing transfer.

A recent case from the Second Circuit Court of Appeals (which covers New York and New England) holds that an attempt to comply with the Real Estate Settlement Procedures Act constitutes an “the initial communication with a consumer in connection with the collection of any debt” that requires the consumer be given the Fair Debt Collection Practices Act notice.

The debt collector mailed the consumer a letter entitled “Transfer of Servicing Letter.” An attachment stated it was “an attempt to collect upon a debt” and purported to explain some of the provisions of the Fair Debt Collection Practices Act.

The parties agreed the Letter was a debt collector’s “initial communication” but disagreed, however, as to whether that initial communication was “in connection with the collection of any debt,” so as to give rise to the Fair Debt Collection Practices Act notice obligations. The debt collector convinced the trial court the letter was not “in connection with the collection of any debt,” because the letter did not attempt to induce the borrower to make a payment and did not threaten to take action if payment is not made.

The Fair Debt Collection Practices Act itself offers no definition for the phrase “in connection with the collection of any debt.” The Second Circuit concludes that whether a communication is “in connection with the collection of any debt” is to be determined by deciding whether a consumer could reasonably interpret it as being sent “in connection with the collection of any debt,” rather than inquiring into the sender’s subjective purpose. The fact that the letter’s main body evidenced that the letter’s purpose was to convey the information the Real Estate Settlement Procedures Act demands also did not excuse the Fair Debt Collection Practices Act violation.

What is the practical lesson of this case? A debt collector should keep the notice of servicing transfer required by the Real Estate Settlement Procedures Act separate and free of any notice that it is attempting to collect a debt, that the borrower has limited time to dispute the asserted debt, or that the borrower has certain rights to information about her debt. The debt collector cannot excuse statements that would lead a reasonable consumer to believe it was attempting to collect a debt by arguing that it was just trying to comply with the Real Estate Settlement Procedures Act.

The Second Circuit case is Hart v. FCI Lender Services, Inc., —F. 3d — (2015 WL 4745349). At least two other federal courts of appeals have reached similar conclusions.